How GCs are Cutting Costs—and Possibly Law Firm Profits

The general counsel of several large companies are requiring more of their law firms to use flat fees instead of charging by the hour.

The result: Companies are saving money and law firms are likely feeling the earnings squeeze, the Wall Street Journal (sub. req.) reports.

The article says these companies are demanding flat fees:

• Pfizer Inc., which will pay lump sums to 16 law firms handling specific areas of work, such as litigation and tax matters. Pfizer general counsel Amy Schulman told the newspaper she expects to save her company 15 percent to 20 percent of its law-firm spending, mostly because of flat-fee arrangements. “I have told firms you cannot make your historical profit margins” on Pfizer work, she said. (Schulman is the world’s 81st most-powerful woman, according to Forbes.)

• Cisco Systems, which uses flat fees and other alternatives to the billable hour for about 80 percent of its work.

• American Express Co., whose general counsel is using more alternative billing.

The article says these law firms are stepping up alternative billing arrangements:

• Orrick, Herrington & Sutcliffe, which uses software to e-mail lawyers when they hit certain levels of a fixed-fee budget. The law firm saves money by hiring some lawyers at lower pay from lesser-ranked schools, and by hiring college graduates to handle some routine tasks.